Why Trust Accounting in Sydney matters more than ever in 2025

For family groups and business owners, trust accounting in Sydney is about compliance and preserving wealth across generations. Yet in 2025, the rules of the game are changing. The Australian Taxation Office (ATO) has intensified its focus on family trusts, placing renewed scrutiny on how income is distributed and documented under Section 100A.

This article unpacks what the latest Section 100A guidance means for family trusts, how it affects your trust accounting in Sydney, and what steps to take to stay compliant and confident in 2025.

A New Era of Tax Scrutiny

The ATO’s recent actions set clear intentions to scrutinise the operations of private wealth groups, especially those relying on family trusts. This isn’t an audit surge but a deliberate, targeted compliance strategy. In 2025, many arrangements once considered standard are now under renewed scrutiny.

The ATO’s focus has shifted from paperwork to substance, such as tracing how funds actually move between beneficiaries and entities. Recent rulings and enforcement activity reveal a consistent pattern: the tax office is challenging trust distributions that lack a genuine commercial purpose and appear structured purely for tax advantage.

What is Section 100A?

At its core, Section 100A is an anti-avoidance provision within the Income Tax Assessment Act 1936. It was introduced to prevent trust structures from being used to divert income for tax advantages rather than genuine family or business purposes. The rule applies when a trust distribution is made to one beneficiary on paper. Still, the benefit is received by someone else, often a parent, company, or another related entity on a higher tax rate.

The ATO refers to these as “reimbursement agreements”, and under Section 100A, such arrangements can be disregarded entirely. When that happens, the trustee and not the intended beneficiary is taxed at the top marginal rate on the relevant income.

Importantly, the ATO’s latest guidance clarifies that Section 100A is not limited to overt tax-avoidance schemes. Even long-standing family practices, such as crediting distributions to adult children without actual payment, may now fall within scope. The key test is whether there is a genuine commercial or family purpose behind the arrangement.

A common misconception is that properly executed minutes or resolutions are enough to stay compliant. The ATO has made it clear that it will look beyond documentation to the economic reality of how funds are used and who truly benefits.

The Latest ATO Guidance and Enforcement Activity

The ATO’s latest Practical Compliance Guideline (PCG 2022/2) has drawn a clear line in the sand. It introduces a traffic light system — Green, Amber, and Red Zones — to help taxpayers understand the level of compliance risk associated with their trust arrangements under Section 100A.

An arrangement in the Green Zone is considered low risk, meaning the ATO will generally not allocate compliance resources to review it. These are straightforward scenarios where an adult beneficiary receives and controls their distribution for their own use. For example, paying living expenses or investing in their own name.

At the other end of the scale, Red Zone arrangements are high risk. These typically involve circular or contrived flows of funds, such as when money is distributed to a beneficiary but ultimately returns to the trustee or another controller of the trust. These arrangements are viewed as lacking commercial purpose and are highly likely to trigger an audit, with the potential for tax at the top marginal rate and significant penalties.

Sitting between the two, the Amber Zone represents uncertainty. These are arrangements that may have legitimate family or commercial elements but could also be interpreted as reimbursement agreements, depending on intent and evidence. For instance, where funds are applied for the benefit of a family member but not directly received by the named beneficiary, the ATO may review the arrangement more closely.

Why Family Trusts Are Under the Microscope in 2025

So, why the intense focus on family trusts now? A combination of factors has brought them into the spotlight. For years, some advisors promoted aggressive tax planning strategies that pushed the boundaries of the law, creating complex webs of distributions that lacked real economic substance. The ATO is now systematically unwinding these arrangements.

Furthermore, with government budgets under pressure, there is a renewed push to ensure every taxpayer, from large corporations to private family groups, pays their fair share. The current economic climate means the ATO is leaving no stone unturned in its quest for revenue integrity. This isn't about punishing families for using legitimate structures; it's about dismantling arrangements that exploit loopholes. The ATO’s scrutiny is a direct response to practices that create an uneven playing field, ensuring that the benefits of trusts, like the 50% capital gains tax discount, are applied as intended.

Broader Compliance Landscape: From Mining to Family Trusts

The ATO's focus on family trusts is part of a much bigger picture. A few years ago, headlines were dominated by the ATO's record corporate tax collections, with the mining sector alone contributing a colossal $42 billion in FY22. This demonstrates the tax office's capacity and willingness to pursue compliance on a massive scale.

Now, in 2025, that same level of rigour and analytical power is being applied to the private wealth sector. Tax integrity is a priority across the board. The strategic pivot from policing corporate giants to examining the intricate structures of family groups shows a commitment to ensuring fairness and compliance throughout the entire economic ecosystem. It reflects a broader policy agenda where every taxpayer is held to the same high standard of accountability.

Common Section 100A Mistakes Accountants Are Seeing in 2025

Even with the best intentions, many family trusts are unintentionally breaching the ATO’s new Section 100A guidance. Across Sydney, accountants are flagging several recurring issues:

• Paper distributions: Income is allocated to an adult child (often at university) to take advantage of their lower tax rate, but the funds are never actually transferred. Instead, the money is used by parents or the trust to cover family expenses.

• Circular loan arrangements: A trust distributes income to a company or related entity, which then loans the money back to the trust, often without a properly documented, commercially valid loan agreement.

• Unclear beneficiary entitlements: Trust resolutions or minutes are vague, backdated, or fail to clearly identify beneficiaries.

• Historical distribution patterns: Long-standing practices assumed to be “standard” are being re-examined, particularly where no genuine payment or commercial purpose can be demonstrated.

• Lack of proactive review: Many trustees only check compliance annually, missing opportunities to identify risks from prior years that may now be subject to ATO scrutiny.

These arrangements, once common, are now directly in the ATO’s focus. Rectifying them requires a detailed review of both current and historical distributions, supported by clear documentation and professional advice.

How Accountants Can Support Clients with Trust Accounting in Sydney

Section 100A has changed how the ATO reviews family trusts, focusing on the real flow of funds and the purpose behind each distribution. For Sydney families and business owners, trust accounting now demands accuracy, documentation, and clear commercial reasoning.

At Tullastone, we support trustees and advisers in preparing robust trust structures and documentation that meet ATO standards. Want help assessing your trust’s setup under the new rules? Reach out to Tullastone to explore how we can assist.